Almost a year on since the first major implementation date for the regulator’s Consumer Duty, the protection and health insurance sector finds itself embracing a new shared definition of what good looks like.
The Duty has placed more emphasis on insurers and intermediaries to consider more clearly the needs of vulnerable customers, asking whether they pass the ‘parent’ test and adapting communications and review processes accordingly.
Providers and advisers are having to be mindful of not letting customer ‘sleepwalk’ through purchases while interrogating commissions so they properly deliver fair value.
But ahead of the looming deadline for closed books, the industry is also increasingly aware that the Duty is not a ‘one and done’ and that its challenge to the sector is ongoing, while one adviser has accused providers of ‘sitting on the fence’ in ensuring the Duty drives the change the regulator wants to see.
Sharing a definition what good looks like
“The Consumer Duty formalised a way of working that was already standard procedure for many adviser firms and insurers,” Socrates Mhlanga, chief risk officer at The Exeter, tells Health & Protection.
“However, it has created a shared definition of ‘what good looks like’, allowing firms and providers to work together to deliver positive customer outcomes for customers at every communication point, looking at the outcomes of individual points as well as the journey overall.”
Mhlanga cites the example of providers offering more detailed continuing professional development (CPD) training on vulnerability to advisers, in volumes that perhaps were not as common in previous decades.
“In addition, more firms are leveraging databases to accurately log their communications with customers, which doubles as an evidentiary record to monitor the outcomes customers are experiencing and a starting point for client conversations,” Mhlanga continues.
“If an adviser can check a customer’s history at a glance, this can streamline conversations and help both parties arrive at the point of a formal recommendation much sooner.”
Among the work it has carried out, Axa Health reveals it has made “significant” enhancements to many areas and frameworks affecting customers.
“Most notably through improving our ability to monitor customer outcomes in a more automated and timely fashion, to help prevent poor outcomes,” the provider said.
“We’ve increased our focus and made changes to the way in which we consider vulnerable customers, and those experiencing financial difficulty.
“We also place greater emphasis on the clarity of our communications to empower customers to make better informed decisions.
“Our Voice of the Customer (VOC) insight programme has been developed to enable us to leverage real-time feedback, thereby elevating our customer service and improving the overall experience.”
Embedding the Duty
Over at Vitality, its chief customer officer, Matthew Dijkstra, reveals the Consumer Duty is now embedded across the company.
“This includes our products and the way we do business, with our approach to insurance – where we encourage our members to generate value from day one of their policy by engaging with the Vitality Programme and taking steps to improve their health – ready-made to assist advisers to fulfil their obligations under the Duty, providing quality comprehensive products with embedded value for the member.”
Further defining good outcomes
Key successes for Scottish Friendly in implementing the Duty have included further defining the good outcomes it wants customers to receive and creating a framework for monitoring outcomes.
Though head of operational and conduct risk, Aileen Abernethy, also points to industry wide challenges in implementation of the Duty.
“One of the challenges which has been acknowledged by the FCA in their recent Dear CEO letter was in relation to the availability of some data to assess the outcomes for customers in legacy closed book products. However we believe we have taken appropriate steps to address this,” she adds.
Importance of a clear process
For Alan Waddington, director of distribution Cirencester Friendly, implementation has been about having a clear process in place.
“At Cirencester we prioritised this process and have already completed it. We have a statement on the adviser page of our website, so our partners are confident that this work is has been done.
“Going forward, future schedules for reviews for closed and open book products will be conducted annually.
“For us, the biggest challenge was reviewing all our closed book products as we have such a long heritage.
“This proved to be a very useful process as it gave us the impetus to introduce proactive steps to amend contract rules where needed and ensure all current products continue to offer fair value.”
Incremental changes
For Unum, in its market, the firm says Consumer Duty is most likely to lead to incremental changes in improving outcomes for customers rather than a single, fundamental shift.
“Changes such as building propositions that provide real and tangible support when needed, how we interact with and support our customers, developing digital solutions, and improving accessibility for end users with characteristics of vulnerability, have all been part of the direction of travel over recent years, but have likely been expedited in some cases as a result of Consumer Duty,” it added.
Greater focus on protection
For LV= the biggest impact of the Duty for protection has been the greater focus that financial advisers are placing on protection as part of the advice process.
“We have seen growing numbers of Income Protection sales following the introduction of Consumer Duty,” the firm tells Health & Protection.
“We have also seen wealth managers increase their focus on the client’s need for protection.
“It has also been encouraging to see the growth in referrals from financial advisers who don’t write protection to specialist firms. All of these changes have proved to have a positive impact on improving consumer outcomes.”
Looking through a different lens
And for Rus Waygood, sales manager, protection at Canada Life, the Duty has influenced the market to look at business lines, products, and the product life cycle from a different lens – the one of the end consumer.
“The ability to break down individual products and processes that historically have been in place for efficiency and regulatory or legislative adherence into consumer micro journeys – examining consumer touchpoints, foreseeable harm, journey improvements and consumer outcomes – has provided invaluable data that can be used to shape future product development and enhancement,” Waygood says.
“Many positive improvements to how and when we engage with consumers, the language, method of communication and how we collate feedback have been identified.”
Not letting customers sleepwalk through a purchase
In terms of the ultimate aim of the Duty, James Daley, managing director at Fairer Finance, explains it is not okay to let customers sleepwalk through a purchase and not understand what they’re buying.
“Firms should also not rely on sending out a single letter at key moments in a customer lifecycle – even though you know most customers won’t read and won’t react to these letters,” Daley continues.
“Firms need to be doing much more to prove that they are trying to help customers make informed decisions at every step of their life with them.”
Passing the parent test
And with demystifying products for consumers forming an integral part of the Duty, Justin Harper, chief marketing officer, LifeSearch, maintains the rules pose one core question to the industry – do we pass the ‘Mum Test’?
“Or, in other words, can we explain the complexities of, say, term cover or critical illness sufficiently well that our mum (or dad) can buy it with confidence?” Harper says.
“That extends to explaining our decision making with clarity and confidence – ‘does that make sense to you Mum’? And that we can clearly evidence how and why we’ve arrived at a decision for ourselves, and the regulator.
“This can only happen if we see everything – from product lifecycle, through service to distribution, advice and product design – through the lens of consumer need.”
Inflated commissions
But Daley also warns that like all businesses, advisers have had to look at where they are making their money and be clear that the reward is justified in the context of the service they are delivering.
“If you’re taking inflated commissions for doing very little work – then you’re going to need to come up with some persuasive evidence to show how you’re offering fair value,” he continues.
“More broadly, advisers have needed to gather more evidence that they are delivering good outcomes.
“That means getting more information from the firms whose products they are selling – and gathering more data to track their customers’ outcomes.”
Alan Lakey, director at Highclere Financial Services, warns that while the issue has not affected his business, advisers who sell on price will find it difficult to argue that this provides the best outcome.
Fence sitting
While it’s clear a lot of work has gone on to meet the requirements of the Consumer Duty, Andrew Wilkinson, director at Moneysworth, says his general sense is there has been a lot of sitting on the fence over the Consumer Duty, among both manufacturers and distributors, waiting to see what enforcement measures the regulator will take and how serious they really are about the need to focus on good outcomes and address poor outcomes.
“For example we expected to see insurers opening up access to more products, especially for those they have previously declined on a class basis (such as 100% decline for specified health conditions),” Wilkinson continues.
“But with a few minor exceptions we are still mostly where we were a year ago.
“Looking at the distribution side we expected to see a very significant uptick in protection business from those wealth and mortgage firms who had previously hardly used their protection insurance permissions as this was a significant underlying cause of bad outcomes, but to a large extent again it appears we are still where we were a year ago.
“So it’s all eyes on the FCA to see what they do when they see the results of the first round of Consumer Duty reports. If they choose to mostly not take much action then we can expect to see a continuation of the status quo which is unlikely to lead to a significant improvement for consumers.”
Ongoing challenge
For David Hollingworth, associate director, communications L&C Mortgages, it’s up to the industry to keep challenging itself to do better and continuously monitor and improve customer outcomes, stay updated on regulatory changes.
“That may for example require investment in technology to sustain compliance and meet evolving Consumer Duty objectives,” Hollingworth adds.
“The key shape of the market both now and into the future is to ensure you are fully customer outcome focussed, continually monitoring and looking to improve. Continuing to look at how you define, measure, report and action good customer outcomes is key.”
Rising bar
And ultimately as the regulator points out Consumer Duty is not a ‘one and done,’ with Daley describing it as a “rising bar”.
“Year one has been about the basics – communicating with customers in clear language, gathering better management information, creating better processes to analyse complaints trends and follow them through, and ultimately putting together a compelling narrative that justifies you are working to deliver good customer outcomes,” Daley continues.
“I think in year two, we will start to see the regulator pointing out where firms have not gone far enough – putting pressure on the laggards to start catching up with those who have taken the Duty as it was intended,” Daley says.
“In time, the Duty will then start to delve into some of the more challenging and existential questions for different products. Are underwriting models fair? Is it reasonable to turn claims down for non-disclosure when firms have sold policies direct to consumers – and are relying on the answers to a set of complex and personal questions, which consumers may not even be honest with themselves about.
“Ultimately, we need to get to a point where insurers have aligned the interests of their shareholders with their customers.
“I think we still have a way to go on that front – but Consumer Duty will be the catalyst that drives us closer.”